I pretty much wouldn't have cared about Japan's economic situation, had I not moved here for work. I recently saw my savings devalue by more than 25% by the falling yen. And I realized it was about time to read about the recent events, especially the popular economic movement that's being hailed as Abenomics, after the current prime minister, Shinzo Abe.

Before we delve into Abenomics, let's talk about history of Japan's economy.

Since the mid-19th century, after the Meiji restoration, the country was opened up to Western commerce and Japan started rapidly developing. A new Western-based education system was encouraged. Thousands of students were sent to the United States and Europe, and thousands of Westerners were hired to teach modern science, mathematics, technology, and foreign languages in Japan. The government also built railroads, improved roads, and inaugurated a land reform program to prepare the country for further development. It also promoted private enterprises and growth accelerated till 1945.

After the second world war, Japan had to rebuild from scratch, as most of the infrastructure and industries were destroyed during the war.

1960s saw the miracle growth period for Japan, as the economy grew at 10%. And then at an average of 5% in 1970s and about 4% in 1980s. It rapidly moved on from agriculture to Manufacturing and services, exporting to the more affluent West. Their fully automated, highly reliable automotive lines were sending shivers across the motor cities in the West.

Soon, Japan’s booming post-War export economy and strict fiscal policies that were meant to encourage household savings resulted in a cash surplus in the country’s banking system that eventually led to more lenient lending. The country’s healthy trade surpluses and the Plaza Accord in 1985, which sought to weaken the U.S. dollar against the Yen and German Deutsche Mark, caused the Yen currency to appreciate against other currencies, which in turn made foreign capital investments relatively inexpensive for Japanese companies.

Banks started to increasingly take excessive risks and Bank of Japan’s (BOJ) loose monetary policy in the mid-to-late 1980s led to aggressive speculation in domestic stocks and real estate, pushing the prices of these assets to previously unimaginable levels. From 1985 to 1989, Japan’s Nikkei stock index tripled to 39,000 and accounted for more than one third of the world’s stock market capitalization. Soaring stock and real estate prices generated astounding amounts of “bubble wealth” in Japan.

By 1989, Japanese officials became increasingly concerned with the country’s growing asset bubbles and the BoJ decided to tighten its monetary policy. Soon after, the Nikkei stock bubble popped and plunged by nearly 50% from approximately 39,000 to 20,000 during the year 1990, hitting 15,000 by 1992. Japan’s imploding stock bubble also popped the country’s real estate bubble, throwing the country into a deep financial crisis, wiping trillions of dollars of private wealth, and halting the three-decade old “Economic Miracle” in its tracks.

Japan’s deteriorating competitive edge against other Asian exporters, including China and South Korea, and its steadily deflating stock and property prices during the 1990s and 2000s have resulted in these later decades being called “Lost Decades.” During this time, many unprofitable and debt-ridden companies were kept afloat through frequent government bailouts, leading to their nickname, “Zombie companies.”

The Nikkei stock index is now trading around 14,500, just over a third of its its all-time high. It has been over two decades since the popping of Japan’s economic bubble and the country is still actively battling with deflationary forces that are so powerful that near-zero interest rates, repeated bouts of quantitative easing and constant Yen-weakening currency interventions have barely made a dent.

More recently, the recent global financial crisis and a wave of Natural disasters have taken a toll on the economy. The recent Tsunami is expected to have cost the economy an upwards of $300b. As of 2011 public debt stands at $13.64 trillion, a mind numbing 230% of GDP.

With this backdrop, let's talk about Abe-san, and the world's hopes for the great revival.